# Risks for Lending Users #### **Smart contract risk** Smart contract risk is inherent when using DeFi protocols. While smart contracts—self-executing code running on blockchains—are designed to be secure, they may contain vulnerabilities or bugs. A flaw in smart contract code could allow attackers to exploit the protocol and steal funds, potentially resulting in losses for suppliers and borrowers. Given this significant risk in DeFi, users should thoroughly evaluate protocol security before participation. #### **Liquidation** When a borrowed amount exceeds the borrowing limit, the protocol allows liquidation—where a portion of the collateral is exchanged at market price with a liquidation discount. This mechanism incentivizes arbitrageurs to act quickly, reducing both borrower and protocol risk. The close factor (ranging from 0 to 1, typically 25%) determines how much of the borrowed asset can be repaid. Liquidations continue until the borrower's debt returns below their borrowing capacity. The liquidation incentive for our platform is min(50%, 1 - (1.4-0.4\*LLTV) ). #### **Market risk of the protocol** Borrowing from Untitled Bank's market requires "excess collateralization"—supplying collateral worth more than the borrowed amount. If collateral value falls below the borrowed amount before liquidators can act, borrowers lose the incentive to repay their position. #### **100% Utilization Risk** When an asset reaches 100% utilization (all supplied tokens are lent out), the pool becomes depleted. This prevents both withdrawals and new borrowing until the utilization rate decreases through loan repayments or new deposits. This risk particularly impacts users with large pool deposits or during periods of high borrowing demand. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.untitledbank.co/risk-documentation/risks-for-lending-users.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.